As turmoil persists in financial markets and shakes confidence in the economy, investor advocates are cautioning analysts to be vigilant for signs of aggressive accounting tactics and fraud.

RiskMetrics Group is telling analysts to be especially skeptical about information companies present or dress up as measures of their financial health—“particularly non-GAAP or newly introduced metrics that are emphasized to investors but are not subject to rigorous audit procedures.” In a Webcast this week, RiskMetrics outlined its hot list of accounting issues that are most likely to create tension in varying ways among preparers, auditors, regulators, analysts, and investors.

Among the big concerns, valuation and impairment of financial instruments tops the list. RiskMetrics expects more “fast-tracked rule changes” related to fair value, impairments, and reserves. The Financial Accounting Standards Board has a number of short-term, quick-fix projects on its agenda related to fair value and impairment, sparked by the credit crisis and its mushrooming effects. One in particular would require more interim disclosure around fair value, and one would streamline the model for impairments.

While the reporting problems are especially pertinent for financial institutions, other public companies can run into problems as well, says Jeremy Perler, co-head of an accounting research group at RiskMetrics. Companies reporting their interests in other companies, for example, may assert that depressed values are temporary, he says. “If you own this company, you want to know the potential that that impairment is not just temporary,” he says.

Perler says companies are expected to face a raft of new disclosure requirements, many of them focused on complicated financial instruments, fair value, derivatives, off-balance-sheet entities, pension plans, contingencies, credit derivatives, discontinued operations, and oil and gas reserves. “The standard setters have been pretty active recently in requiring new disclosure,” he says. “This year we expect to see a ton of them in different areas.”

RiskMetrics says analysts and investors should also look cautiously at anything related to off-balance-sheet entities, pension plans, business combinations, convertible debt, and revenue recognition. Longer term, the group says companies should also keep close tabs on developments in the shift to International Financial Reporting Standards and in the movement to develop a new presentation system for financial statements.

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